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Providers warn of another decade of 340B payment problems

Leading provider associations are urging the CMS to reconsider severe cuts to 340B reimbursements to hospitals, warning of another decades-long payment battle.

Jacqueline LaPointe
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Published: 31 Aug 2026

The American Hospital Association is warning the federal government that history could repeat itself if it finalizes reimbursement cuts to hospitals participating in the 340B Drug Pricing Program.

In July, the Centers for Medicare and Medicaid Services proposed significantly cutting reimbursement for qualifying prescription drugs purchased by hospitals participating in the Program. If finalized, the reimbursement formula would shift from the average sales price of the drug plus 6% to ASP minus 33.4%.

The CMS justified the proposed change, saying hospitals acquired eligible drugs at an average cost below the ASP, based on a cost acquisition survey conducted in the first quarter.

However, the AHA now counters that the survey is not legally valid and shouldn't be used to cut reimbursement rates for hospital groups, such as those participating in the 340B program.

"Before imposing another reimbursement cut, CMS must be certain that it has the statutory authority to act and that the benefits justify the substantial costs it will impose on 340B hospitals and the vulnerable patients they serve," wrote Chad Golder, the AHA's general counsel and secretary, in a letter to federal officials.

"At the very least, CMS must consider the time, effort and resources spent litigating and unwinding its first attempted reimbursement cut -- and the prospect that, a decade from now, CMS and hospitals could find themselves doing the same thing all over again," the letter continued.

A decades-long problem with 340B payments

The problem at the center of the latest 340B debate is a policy that reduced reimbursement for 340B-acquired drugs between 2018 and 2022 from the standard rate of ASP plus 6% to ASP minus 22.5%. Hospitals challenged the policy, and a 2022 Supreme Court ruling sided with the providers, invalidating the reimbursement cuts.

The CMS had to unwind the payment reductions and make remedial lump-sum payments to affected hospitals, totaling about $9 billion. It also had to recover about $7.8 billion in non-drug payments that were distributed to hospitals during those years under budget neutrality.

The timeline for recovering the money was slow at first -- a 0.5% annual reduction -- but has since been followed by proposals to accelerate it with higher annual offsets, such as the latest 3.0% update.

However, speeding up the timeline will just burden already-cash strapped hospitals, particularly those serving the most vulnerable patient populations, the AHA said. The group reported that the higher annual offset would increase the yearly recoupment per hospital by 500%, on average.

"The actual cost could be millions of dollars each year for some hospitals," the letter stated. "This is money that hospitals can no longer spend on care for patients and communities -- all because the HHS pursued an unlawful policy years ago and now insists on recouping the funds faster."

If finalized, the accelerated timeline would also coincide with significant health policy reform, particularly under the federal spending package signed by President Donald J. Trump last July, which is estimated to increase the uninsured population by over 10 million people through 2034.

The AHA maintains that any clawback is illegal; however, provider groups, like the American Medical Group Association, urged the CMS to at least gradually phase in higher offsets if the agency elects to move forward with an accelerated timeline.

Moving forward with 340B cuts

Now, the CMS is trying to do what the Supreme Court said it failed to do the first time it tried to alter the 340B reimbursement formula: conduct a cost acquisition survey.

President Trump directed the Department of Health and Human Services last year to conduct the survey to support 340B program reform, following concerns about its bloat and potential inappropriate gaming of discounts.

Per federal statute, the CMS may vary reimbursement rates for specific types of hospitals only after conducting a valid cost acquisition survey. However, the AHA argued that the survey done earlier this year did not have a large enough sample size -- 28.6% of 340B hospitals and 41.4% of total hospitals, per the proposal -- to produce statistically significant results.

The hospital group also criticized the survey's methodology for assessing drug costs based on hospital purchases.

The AMGA called on the CMS to share detailed, de-identified, and aggregated data from survey respondents before using these points to "establish a permanent national payment policy," and to explain its methodology.

Regardless, providers still oppose the significant cut to 340B reimbursement. The AHA wants the proposal withdrawn entirely, but provider groups also advised the CMS to at least reconsider both the timing and magnitude of the proposed reductions.

The finalized rule is expected to drop around November 1 to align with a January 1, 2027, effective date.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.

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